Credit Scores & Mortgages

Discover the relationship between your credit score and home loan rates

A credit score is often a stressful mystery to many people. One little number can cause big dollars to flow out of your bank account. But how? Why? And what can you do to ensure this doesn't happen?

Become an empowered borrower and informed potential homeowner. Learn how your credit score and mortgage are related and how a good credit score can equal lower mortgage rates.

Your credit score in a nutshell

Your credit score is the result of your payment history. Every time you accessed a line of credit as with a student loan, car loan, mortgage or credit card, that creditor kept track of how successfully you paid back the credit. If you often missed payments, your score suffered. If you have a stellar record, your score is probably pretty good. The credit score ranges from 300 to 850. A strong score is generally anything between 760 and 850 while anything under 620 can hinder you. If your score is lower than 500, you likely won't be approved by most creditors without a co-signer.

How your credit score factors into your mortgage application

Your credit score is a big part of the mortgage approval process because it's proof of your ability to pay back your loan. A low score tells the lender that it's likely you won't pay. However, your credit score is not the only factor in your mortgage application. In some instances, a substantial down payment or carrying little to no debt may compensate for a lower credit score. This depends on the lender, so don't be discouraged if your credit score is less than perfect.

How your credit can earn you a lower mortgage rate

Borrowers with top-notch credit scores generally get the lowest mortgage rates available. If your score is weaker, the lender may choose to offer you higher rates, fewer loan products or no loan at all. If you need to improve your credit score, there are several things you can do:

Pay down credit cards. If you're carrying high balances on one or more cards, this can damage your credit score. One of the best things you can do is pay the cards down or pay them off completely. While you may have a high credit limit, lenders prefer to see that you're not maxing it out.

Eliminate high interest debt. If you've got several debts weighing you down, pick the one with the highest interest and focus on paying that off first. By eliminating that debt, you'll save yourself significant money in interest payments and decrease your current debt load.

Keep accounts open. As you pay credit cards off, you may be tempted to also close them, which is not recommended. Remember that lenders like to see credit that's not being maxed out. So, keep those accounts open even if they have a zero balance. It shows lenders that you have a lot of credit available but that you don't have to use it all.

See if you can lower your mortgage payment

Whether you're applying for a new home loan or mortgage refinancing, your credit score can impact your rates and payments. Contact a Citizens Bank home loan advisor at 1-888-514-2300 to talk about your options and possible rates.